Wednesday, April 13, 2011

Debt, Deficit and Deception

April 13, 2011, 11:30 a.m.; 2:48 p.m. (addition of link to text of President's speech); April 14, 2011, 11:15 a.m.

Suggestions for Washington

Here are some early thoughts about federal fiscal responsibility, and suggestions for Washington, prior to the President's address later today. ["Remarks by the President on Fiscal Policy," George Washington University, Office of the Press Secretary, The White House, April 13, 2011.]

My April 14 take on that speech: appreciated sentiments with which I agree (e.g., "Part of this American belief that we’re all connected also expresses itself in a conviction that each one of us deserves some basic measure of security and dignity. . . . And so we contribute to programs like Medicare and Social Security . . .. We’re a better country because of these commitments. I’ll go further. We would not be a great country without those commitments."), the proposals were neither as detailed nor as bold as I would have liked, but I welcomed his putting all programs (including defense) on the table, along with a seeming willingness to fight for major social programs, eliminate some of the subsidies embedded in the tax code, and raise taxes to pre-President Bush levels.

1. Make sure everyone understands the difference between "deficit" and "debt." The "deficit" is the amount that our expenditures exceed our income for a single budget year; the amount the federal government puts on its credit card with no intention of paying during that year. The "debt" is the total of all past "deficits" that have never been paid off. (The interest on that debt alone is a roughly $300 billion budget item each year, an amount projected to reach $1 trillion annually in a few years.) In other words, we could eliminate the entire "deficit" for every year from now until the next century and we'd still be left with that $14 trillion debt and its mounting interest obligation.

2. Don't hold budgets hostage to policy debates. With $14 trillion of debt (closer to $100 trillion if future, unfunded obligations are included), and a deficit of $1.4 trillion (see, "U.S. National Debt Clock: Real Time"), it was junior high lunacy for our elected representatives to hold up the budget, and threaten closing down government, over $38 billion worth of program cuts.

We should provide that whatever programs (and their budget levels) have been agreed to 60 days before the expiration of the fiscal year will be embedded into the next year's budget along with what's rolled over at the pre-exiting levels. Major program and policy decisions with budget implications will have to be addressed by relevant committees, and the full House and Senate, during that 10-month window. If the decisions are not made by then the funding level remains the same for the following year.

To do this, at least our elected representatives (but really all Americans) need access to data that either does not now exist or is extraordinarily difficult to access. We need a program review, not an agency budget review. The "program" may involve numerous pockets of money scattered throughout a number of agencies. This is not a matter of moving boxes around on organization charts. It requires a micro look at thousands of programs. For each we need to ask: What is this program designed to achieve? Are the reasons it was (or "they were") originally created still applicable today? How do we measure the outputs? In other words, "How would we know if we'd ever been successful?"

Here's but one example, in this instance of a program that had continued beyond its time. As the newly appointed federal Maritime Administrator (1964-65), I tried to inform myself regarding the 100-plus programs of the Maritime Administration (MARAD) by visiting with individual employees. In the last office at the end of a long hallway a fellow was working on a catalog. "Why does MARAD have its own catalog when there is a General Services Administration (GSA) that provides the entire government the equivalent of a catalog listing necessary supplies?" I asked. The need, it seems, originated during World War II when the MARAD catalog had items not needed by other agencies: ships. So why was he still working on the catalog 20 years later? It turned out that I was the first Administrator who had ever wandered down his hall, discussed the matter with him, and told him to stop.

While it's true that most agency heads don't take the time to learn what their employees actually do to that level of detail, neither do I think there are a lot of examples of what's just been described -- only that it takes that micro level of inquiry to figure out what the federal government ought to be doing, and why, how to measure programs' outputs, and what the benefit-cost analyses suggest regarding the programs that need to be revised, eliminated, or created, to better achieve the desired ends.

3. Stop dressing up subsidies as "tax breaks." To the extent possible, get subsidies pretending to be "tax breaks" out of the Internal Revenue Code, and put them on the table as appropriations for subsidies where we can see them. This won't save a dime initially; it's just transparency. But it will ultimately force Congress to construct programs and conduct debates about these giveaways in the bright light of day -- from the "mortgage deduction" to GE's "negative tax" to earmarks.

If it is true, as reported, that all together these so-called "tax breaks" total some one trillion dollars, their elimination would enable us to simultaneously cut everyone's tax rate and still increase the federal government's revenue.

Better yet, change the system.

What we presently have is a mix of fascism (a governing system that intertwines corporate and governmental power) and oligarchy (power vested in a few, normally very wealthy individuals, such as Wall Street's "masters of the universe"). The result is a transfer of taxpayers' money to the bottom line of for-profit enterprises (the executives of which happen to be very, very generous campaign contributors). It is a system of government that is ever so much more expensive for taxpayers than a little purer form of capitalism would be, one in which investors bear losses as well as take profits -- and do it with their own money instead of ours.

4. Campaign finance reform. And speaking of campaign contributors, without major campaign finance reform it is highly unlikely that anything will come out of Congress that favors the 90% poorest Americans over the 10% richest. My rough rule of thumb is that those who contribute in the $100,000-to-$1,000,000 range get back between 1000-to-one and 2000-to-one on their "investment." (For further explanation of the formula, and detailed examples of the forms in which the payback comes, see Nicholas Johnson, "Campaigns: You Pay $4 or $4000," Des Moines [Iowa] Sunday Register, July 21, 1996, p. C2.) There are numerous, tested reforms of our voting systems that would also help by more accurately reflecting the views of the electorate. For examples, see Fair Vote (the Center for Voting and Democracy).

A major reason for the fiscal problems we have is the political system we have. That pay-to-play, special interest-driven, fundamentally anti-democratic, basically corrupt system created these problems. However awful it may be, however much the participants may occasionally grouse about it, so long as it continues to work for them, as long as it continues to drive them toward ever greater wealth and power, I'm betting they'll let America crash and burn (as they did in 2008 and 2009) rather than provide the basic reforms we need.

Nor does it portend much "change we can believe in" to read that President Obama has lined up 400 "bundlers," each of whom is charged with collecting enough checks from individuals to total $700,000 from each bundler. ("President Obama’s campaign machine is telling its chief money raisers to go all out in the big-dollar political art called bundling [named for the practice of avoiding the receipt of checks from institutions by collecting individual, personal checks from the highest paid employees and then "bundling" them for delivery to the candidate]. The goal is to enlist 400 or more bundlers — specialists in packaging contributions from deep-pocketed supporters — to pledge to raise $700,000 each for the 2012 campaign." Editorial, "Cue the Obama Money Bundlers," New York Times, April 9, 2011, p. A20.

And at that, this will be less than one-third of his $1 billion goal for 2012 (compared with the $745 million he raised for his 2007-08 campaign). John McCormick, "Obama's Money Pump for 2012 Re-Election Bid Primed by Chicago," Bloomberg Businesweek, April 14, 2011. (Needless to say, the Republicans will be doing the same -- and with the added benefit of the Citizens United gift from the Supreme Court.)

5. Start with the big items. As Peter Drucker often pointed out, even businesses can make the mistake of focusing 90% of their executives' time on what's producing 10% of their profit. [E.g., "[A] very small number of events -- 10 percent to 20 percent at most -- account for 90 percent of all results, whereas the great majority of events account for 10 percent or less of the results. . . . The largest group of salesmen (and especially the most effective ones) are usually put on the products that are 'hard to sell,' . . . which managerial vanity desperately is trying to make into 'winners.' . . . And the product that has sensational success -- [which] ought to be pushed all-out -- tends to be slighted. 'It is doing all right without extra effort, after all,' is the common conclusion." Peter Drucker, On the Profession of Management (Harvard, 2003), pp. 67, 69.]

But especially in government does the focus need to be on "cost centers," the big bucks. Imagine if the congressional energy that went into debating over that $38 billion had gone into an evaluation of our "defense" policies and spending which are closer to $1 trillion. (It's not just the $500-700 billion "defense budget;" there's the off-budget cost of three wars (another couple hundred billion a year), the Veterans Administration, and what's projected to be as much as an additional $1 trillion for the lifetime of care wounded military personnel will require. Some of "Homeland Security" might go into that discussion as well; e.g., the cost of commercial airline safety once was, and still ought to be, paid for by the airlines (albeit passed along to passengers, the beneficiaries, as a "user fee") as a routine business expense, not added to the non-flying taxpayers' burdens.

There are plenty of suggestions on how we can turn defense policies and budgets from paying more while getting less into paying less and getting more. See, e.g., "New Letter to Deficit Commission on DOD Budget," November 19, 2010, Straus Military Reform Project, Center for Defense Information (signed by eight individuals, former officers and defense advisors, with a combined 300 years of experience).

6. Make Social Security reform a separate undertaking. Social Security funding is a lot better shape than the major contributors to our growing national debt and imbalance of trade. There is no emergency staring us in the face. Moreover, the fixes are kind of obvious. Future beneficiaries pay 6.2% of their income (4.2% in 2011) into the fund -- but only up to a maximum income of $106,800. Making the rich pay the same percentage as the poor (not a "progressive," higher rate, just the same "flat tax" rate) would pretty much solve any Social Security funding problem. [Although, as the comment from billyzelsnack notes, below, that requires a little focus on their potentially increased benefits as well.]

If that's not enough, the retirement age could be raised a bit in response to today's longer life expectancy.

7. Get agreement on "facts." To have a rational and productive public policy discussion among those with strong differences of opinion, it is especially important to acknowledge, as former Senator Daniel Patrick Moynihan put it, "You’re entitled to your own opinions. You’re not entitled to your own facts." "Daniel Patrick Moynihan," For example, are our wealthy taxed excessively, compared with the wealthy in other industrialized nations? Or compared with the income tax rates in the 1950s (a period of economic expansion), or 1990s (when President Clinton created a budget surplus)? What data is there to support the assertion that retaining the Bush tax cuts, or cutting taxes for the wealthy even further, will promote economic growth and generate jobs?

A story, or parable, variously attributed as to occasion and source, involves a group of individuals arguing about the number of teeth horses have. Finally (after 13 days according to one account), someone suggests that perhaps they ought to go find a horse and count them. See, e.g., "Searching for source of 'horse's teeth' parable,"

Or as W. Edwards Deming is credited with saying, "In God we trust; all others must bring data." "W. Edwards Deming,"

I once heard a professor respond to an especially poor recitation by a law student (thankfully not me): "Young man, you have a capacity for subtracting, rather than adding, to the sum total of human knowledge."

Federal officials have access to the statistics of the Office of Management and Budget, Department of the Treasury and Internal Revenue Service, and Congressional Budget Office, among other agencies. For those officials to be spending time spouting supportive, but grossly inaccurate, "facts" is not just a counterproductive and appalling waste of everyone's time, it is "subtracting, rather than adding, to the sum total of human knowledge."

8. Consider the total impact on citizen-taxpayers. The challenge, the impact on citizen-taxpayers, is not limited to "the federal budget." Federal expenditures can be reduced by shifting program responsibilities from the federal government to the states. That doesn't reduce anyone's tax burden. It just means what they used to send to Washington for that program they now have to send to their state capital, in the form of state income, sales, property, or other taxes.

Similarly, shifting tax revenues from Medicare to subsidies for private insurance companies may (or may not) reduce the federal government's payments for "Medicare." But given Medicare's low administrative costs (private insurance companies' costs are multiples more, plus their profits), the "savings" may be more than offset by the increased costs to seniors -- not to mention the additional burdens on doctors' offices in dealing with multiple insurance company forms and procedures, and burdens on seniors who have difficulty understanding their options and costs.

There will be more ideas to come, and possibly some reactions to President Obama's remarks. But this is at least a start.

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Unknown said...

"Making the rich pay the same percentage as the poor (not a "progressive," higher rate, just the same "flat tax" rate) would pretty much solve any Social Security funding problem."

So are you in favor of capping their benefits from the program too?

Anonymous said...

makeing the rich pay the same would be to simple for washington,they would sooner raise the rate on the middle class.

Nick said...

From Nick: The following comment, in Russian, did not make it here, but did make it into my junk mail folder as the email version of a comment intended for this blog entry. Since it is substantive, even if not directly on point, I thought I'd put it up here (although by doing so I do not mean to endorse it). First the Russian, then the Google translation:

Дамы и Господа!

Если вы интересуетесь немного политикой, то должны были заметить - эти неожиданные волнения в странах Африки возникли неспроста.

Есть 2 версии этих событий - "официальная" и "неофициальная", и обе версии скорее уводят в сторону от реальных фактов.
[b]Версия 1:[/b] Каддафи - тиран и самодержец, стрелял в мирных граждан, поэтому его надо бы убрать.
[b]Версия 2:[/b] на самом деле Европе с Америкой захотелось немного Ливийской нефти, и они решили навести небольшой "дебош"

Рассмотрим версию 1.
Да, Каддафи уже тот ещё старик, ему конечно пора бы и на пенсию. Но известно ли вам, что конкретно в Ливии народ имеет весьма высокие преференции при его правлении? Учителя получают под $3.000, выплаты безработным порядка $1000 и так далее. Да, он стал укрощать группки взбунтовавшихся бедуинов, но кто-нибудь понимает реальные причины этих бунтов?
Эта версия не выдерживает никакой критики.

Версия 2.
Нефть Ливии? Да, она отличается высоким качеством, Ливийская нефть очень чистая. Но её там не так много.
Да и к тому же, зачем тогда будоражить Египет и прочие африканские государства, которые весь прошлый год вообще никого не тревожили и не волновали?! А тут вдруг - "тираны", "изверги" и т.п.

Да, эта ситуация дополнительно подогрела цены на нефть. Отдельным корпорациям это выгодно.

Но истина короче.
Каддафи не так давно начал объединять ближневосточные страны под идеей перейти на расчёт за нефть и товары НЕ долларами, НЕ евро, а альтернативой всему этому. И Египет - одна из стран, которая это поддержала...

Подробнее - здесь:

Однако в популярных СМИ это никогда не скажут.

P.S. У Саддама Хусейна, кстати, тоже были такие начинания. Вообще, после кризиса ооочень многие страны стали задумываться об ИЗБАВЛЕНИИ ОТ ЗАВИСИМОСТИ ОТ ДОЛЛАРА. Рано или поздно это произойдёт. ФРС уже некуда понижать ставки.

Распространите это где сможете. Люди должны знать правду.

Кстати, это тоже по теме: Великобритания примет участие в военной операции в Ливии, Италия, Россия отказалась участвовать в военной операции в Ливии, пообещал, Россия отказалась участвовать в военной операции в Ливии, полностью, Великобритания примет участие в военной операции в Ливии, разъяснил

Nick said...

From Nick: Here is the English translation:

Ladies and Gentlemen!

If you are interested in a little politics, you must have noticed - this unexpected unrest in countries in Africa have an ulterior motive.

There are 2 versions of these events - the "official" and "informal" and both versions are probably gone away from the real facts.
[B] Version 1: [/ b] Gaddafi - a tyrant and autocrat, shot at civilians, so it should be removed.
[B] Version 2: [/ b] in fact Europe and America wanted a little Libyan oil, and they decided to put a small "riot"

Consider the version 1.
Yes, Qaddafi has one more old man, he of course it would be time and retired. But did you know exactly what the people in Libya has a very high preference under his rule? Teachers receive a $ 3.000, paid the unemployed about $ 1000 and so on. Yes, he was tame small group of rebellious Bedouins, but someone understands the real causes of these riots?
This version does not hold water.

Version 2.
Oil Libya? Yes, it is of high quality, Libyan oil is very clean. But she was not so much.
And besides, why would haunt Egypt and other African nations, which for the past year in general no one disturbed and worried? And then suddenly - "tyrants," "Monsters", etc.

Yes, this situation is further fueled the price of oil. Individual corporations are profitable.

But the truth is shorter.
Gaddafi is not so long ago began to combine Middle Eastern country under the idea to move to the calculation of oil and goods are not dollars, not euros, and an alternative to all this. And Egypt - one of the countries that supported it ...

Read more - here:

However, in the popular media, it will never say.

P.S. Saddam Hussein, incidentally, also had such undertakings. Generally, after the crisis sooo many countries have started to think about getting rid of reliance on the U.S.. Sooner or later it will happen. The Fed has no place to lower rates.

Spread it where you can. People need to know the truth.

By the way, is also on the theme: Britain will take part in military operations in Libya, Italy, Russia refused to participate in military operations in Libya, has promised Russia refused to participate in military operations in Libya, in full, the UK will take part in military operations in Libya, explained